Partisan Bias in Inflation Expectations

36 Pages Posted: 31 Oct 2019

See all articles by Oliver Bachmann

Oliver Bachmann

ZHAW School of Management and Law

Klaus Gründler

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Niklas Potrafke

CESifo (Center for Economic Studies and Ifo Institute)

Ruben R. Seiberlich

ZHAW School of Management and Law

Date Written: 2019

Abstract

We examine partisan bias in inflation expectations. Our dataset includes inflation expectations of the New York Fed's Survey of Consumer Expectations over the period June 2013 to June 2018. The results show that inflation expectations were 0.46 percentage points higher in Republican-dominated than in Democratic-dominated US states when Barack Obama was US president. Compared to inflation expectations in Democratic-dominated states, inflation expectations in Republican-dominated states declined by 0.73 percentage points when Donald Trump became president. We employ the Blinder-Oaxaca decomposition method to disentangle the extent to which political ideology and other individual characteristics predict inflation expectations: around 25% of the total difference between inflation expectations in Democratic-dominated versus Republican-dominated states is based on how partisans respond to changes in the White House's occupant (partisan bias). The results also corroborate the belief that voters' misperceptions of economic conditions decline when the president belongs to the party that voters support.

Keywords: inflation expectation, partisan bias, political ideology, voters’ perceptions, Blinder-Oaxaca, US president

JEL Classification: C130, D720, E310, P440

Suggested Citation

Bachmann, Oliver and Gründler, Klaus and Potrafke, Niklas and Seiberlich, Ruben R., Partisan Bias in Inflation Expectations (2019). CESifo Working Paper No. 7904, Available at SSRN: https://ssrn.com/abstract=3477717

Oliver Bachmann (Contact Author)

ZHAW School of Management and Law ( email )

St.-Georgen-Platz 2
Winterthur, 8401
Switzerland

Klaus Gründler

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Niklas Potrafke

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Ruben R. Seiberlich

ZHAW School of Management and Law ( email )

St.-Georgen-Platz 2
Winterthur, 8401
Switzerland
+41589344669 (Phone)

HOME PAGE: http://www.zhaw.ch/en/about-us/person/seib/

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